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The Rise in Zero Hours Contracts

The rise of zero hours contracts was recently the subject of an ITV news report and wide press coverage. A zero hours contract is so called because it is intended for use where an “employer” wants to be able to engage the worker on an ad hoc, as required, basis with no guarantee of work from the employer – although it is common for the worker to be expected to be available for work if and when it is offered. 

These types of contracts are also often referred to as bank contracts, where the worker forms part of a bank of workers who may be called on when needed.

Media interest was sparked by figures released by the Office for National Statistics showing that the total number of people working on zero hours contracts increased from 73,000 in the autumn of 2005 to 200,000 in 2012, a rise of 174 per cent.

Despite the dramatic reported percentage rise in these arrangements, out of an active workforce of 29.7 million, the proportion of workers reported to be on zero hours contracts remains small. That said, the incidence of zero hours contracts may be under-reported, including because some workers do not identify themselves as being engaged on that basis because they do not recognise the term ‘zero hours’; and, in any event, such arrangements are not uncommon in the care sector.

The appeal for employers is that such contracts are a cost-effective way of managing fluctuations in demand: they make workers available, without the obligation to pay permanent salaries. They also give rise to fewer employment obligations. Properly applied, such arrangements prevent workers from acquiring a number of employment protections, the chief one being protection from unfair dismissal.

Zero hours contracts need to be drafted carefully and must reflect what actually goes on in practice. This includes that it is advisable the employer ensures the workers in question are not under an actual obligation to undertake work if it is offered. Whilst in certain circumstances it can be disruptive to a business if a zero hours worker does decline an offer of work, this can obviously be mitigated against by having a sufficient pool of suitably flexible bank staff.

Whenever there is a dispute about a person’s employment status, an employment tribunal will scrutinise the nature of the working arrangements. In the 2012 case of Pulse Healthcare Ltd v Carewatch Care Services Ltd, the claimants were held to be employed under contracts of employment despite the employer’s assertion that there was no mutuality of obligation. The documentation included a ‘Zero Hours Contract Agreement’. However, the Employment Appeal Tribunal (“EAT”) upheld the employment tribunal’s finding that the ‘zero hours’ contracts did not reflect the true agreement between the parties. What made the claimants’ case particularly compelling was the nature of the work they carried out. They were engaged to provide critical care to a single patient on a shift system around the clock. The EAT considered it “fanciful” that such care would have been provided through reliance on ad hoc arrangements.

Even though most people on zero hours contracts will not have employee status, they will be workers and therefore have a number of employment rights, including entitlement to holiday pay under the Working Time Regulations 1998. Holiday entitlement can be difficult to calculate and manage in the case of zero hours workers. A commonly-applied, practical solution, although technically unlawful, is to pay rolled-up holiday pay. However, there are risks to employers in adopting that approach, and, if they are to do so, it is important they understand what those risks are and how to mitigate against them.

For advice on drafting and implementing zero hours contracts, contact me at Lanyon Bowdler on 01952 211010 or at john.merry@lblaw.co.uk.